Voice of America (Washington, DC)

27 May 2014

South Africa: Economy Falls in First Quarter

South Africa's economy shrank more than one-half a percent in the first quarter of the year. It's the worst performance since the global recession five years ago. Most of the decline is blamed on the country's prolonged platinum mining strike.

The decline in South Africa's economy follows a nearly four-percent growth rate in the last quarter of 2013. However, the platinum mining strike is now in its fifth month. The government has made a new pledge to mediate the labor dispute, saying mining companies "have not done enough to address the well-being of workers."

David Shapiro, a director at Sasfin Securities, said the strike has been a big drag on the economy.

"Platinum today is one of our biggest exports. In fact, it certainly exceeds gold. You know, gold production in South Africa has fallen dramatically over the last decade or so. Not for any reasons other than we've run out of cheap gold and it's more difficult to get to the gold. So platinum today is a major mineral export."

He described the strike as a major worry. It's unclear how quickly the mining sector would bounce back once the strike does end.

He said, "When we talk about mines, if you keep them closed for that long there are all kinds of issues even if labor does come back to work. These are deep underground mines and require a lot of attention. So you can't neglect them. And even if they came back to work it'll take some time to fire them up again."

Local economies are formed where mines are located.

"People live around the mines and of course they earn their income there. The go out and spend it either on entertainment or they buy groceries. So every industry around the mine also starts to suffer as a result," said Shapiro.

Many of the miners in South Africa are migrant workers. Mine companies offer them either a housing allowance or actual housing. Shapiro said the decision they make can have long-term financial effects.

"A lot of these miners decided to accept a payment, an allowance, instead. And what they did is instead of buying a decent house or renting a decent house, they would send most of the money back home and then rent shacks. And when I say shacks - literally shacks -- living in really dire circumstances, terrible conditions. And that started strike action," he said.

Because of the strike, the miners are not being paid, and are not able to send any money back home. In addition, there are also tensions between trade unions representing the miners. And while miners demand higher wages, demand for platinum is currently down.

South Africa's economy has also been affected by a slowdown in China's economy. Shapiro said from 2000 to 2010, the country benefitted greatly from China's expansion and demand for natural resources, such as iron ore, copper and coal.

"Now that China is slowing down emerging countries, such as South Africa, which are major exporters of minerals, are also starting to feel the pinch. So, that's contributed, as well."

Shapiro also said manufacturing in South Africa has declined as it imports cheaper goods. At the same time, families are under greater pressure to pay back loans and have cut back on buying consumer goods.

Despite the first quarter's bad news, the Sasfin Securities director is optimistic. But he said South Africans are looking to the government to tackle some big issues.

"We're a rich economy," he said, "It's a problem we can overcome. Yes, we've got a lot of people that are unemployed here. That's a throwback from apartheid. Skills development here is very low. But it's an economy that is blessed with so many natural resources. We have a massive array of minerals here. We have natural beauty, which should attract tourism. It's a country that should be flourishing. We shouldn't be where we are."

Three mining companies are negotiating with AMCU, the Association of Mineworkers and Construction Union. However, little progress has been made so far regarding a pay hike.

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